Evidence of meeting #118 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was research.

On the agenda

MPs speaking

Also speaking

Jerome St-Denis  As an Individual
Ron Watt  As an Individual
Kamal Mann  As an Individual
Jesse Helmer  Councillor, City of London
Robert Baker  Vice-President, Research, McMaster University
Shirley de Silva  President and Chief Executive Officer, Sarnia Lambton Chamber of Commerce
Elise Maheu  Director, Government Affairs, 3M Company Canada
Mark Fisher  President and Chief Executive Officer, Council of the Great Lakes Region
Nicole Rayner  Senior Manager, Taxation , 3M Company Canada
Monica Shepley  Manager, Policy and Advocacy, Sarnia Lambton Chamber of Commerce
Satinder Chera  President, Canadian Convenience Stores Association
Margaret McGuffin  Executive Director, Canadian Music Publishers Association
Tovah Barocas  Vice-President, External Relations, Earth Rangers
Tobi Day-Hamilton  Director, Communications and Strategic Initiatives, University of Waterloo, Institute for Quantum Computing
Christina Dendys  Interim Executive Director, RESULTS Canada
Matthew Marchand  President and Chief Executive Officer, Windsor-Essex Regional Chamber of Commerce
Martin Laforest  Senior Manager, Scientific Outreach, Institute for Quantum Computing

10:05 a.m.

Liberal

The Chair Liberal Wayne Easter

Thank you.

Go ahead, Mr. Fisher.

10:05 a.m.

President and Chief Executive Officer, Council of the Great Lakes Region

Mark Fisher

To support Robert's point, any public sector procurement of innovative technology has to become a policy and a practice. Industrialized economies like the United States are very much front and centre in helping de-risk R and D and commercialization by acting as both an investor in the innovation cycle as well as first adopter and buyer of promising technology products and services. That is certainly one area the government should look at, along with the provinces and perhaps even the municipalities. It's got to be a common approach. We seem to be the only industrialized economy that hasn't really adopted that methodology for supporting innovation.

The second point I would make is that in the last couple of years, the government has been very direct, through organizations like FedDev, in supporting and investing in public-private research consortiums like SOSCIP in Toronto, which really help collaborations between industry and academia. The challenge there is that the backbone infrastructure—the computing technology—is extremely expensive. Perhaps we've made a front-end investment to get them up and running, but we need to think about investing in that O and M, the operations and maintenance, over the longer term.

I know when SOSCIP got started, it was roughly an $18-million investment in that backbone infrastructure in terms of machine learning and computing. It's about time to update that technology, because it's getting a bit old after five years. The government could be a major partner in supporting some of that backbone infrastructure and allowing industries and universities to scale on top of that. I can tell you that with SOSCIP, the dividends they've achieved by working with that infrastructure are certainly well beyond the investment that was required for that infrastructure on its own.

10:10 a.m.

Liberal

The Chair Liberal Wayne Easter

Thank you.

Go ahead, Mr. Kmiec.

10:10 a.m.

Conservative

Tom Kmiec Conservative Calgary Shepard, AB

Thank you, Mr. Chair. I'm going to focus a lot of my time with the chamber. I used to work for the Calgary Chamber of Commerce. Actually, Monica, I had the exact same role you did at the chamber there for about 18 months or almost two years.

I want to start with your 2017 pre-budget submission. Then I am going to ask you a bit about the small business tax changes that have been proposed, and the new proposals to change the original proposal they put forward during the summer, and then the scaling up of small business tax rates.

In your 2017 pre-budget proposal, you proposed changing the GST limit from $30,000 to $50,000. How did you arrive at that $50,000 number?

10:10 a.m.

President and Chief Executive Officer, Sarnia Lambton Chamber of Commerce

Shirley de Silva

The amounts were suggested through the Canadian Chamber of Commerce. That's how we arrived at those numbers.

October 19th, 2017 / 10:10 a.m.

Monica Shepley Manager, Policy and Advocacy, Sarnia Lambton Chamber of Commerce

We developed that policy with our members in Sarnia. We were proposing a higher number, but after we brought it to the Canadian Chamber of Commerce, that was the amount the Canadian chamber network agreed on. We thought it was more reasonable.

10:10 a.m.

Conservative

Tom Kmiec Conservative Calgary Shepard, AB

Okay. I saw that in 2012, your pre-budget request asked for it to go up to $75,000, so I was just wondering why it got tailored back down to $50,000. You're saying it was the Canadian Chamber that said to do that.

During your presentation, you referred to the small business tax and said the government was scrambling with these new, one-a-day, out-of-the-box kinds of changes, and now we're playing “Where's Waldo?” with the Finance Minister because he's not appearing in question period. I was going to ask what you think of the government's communication so far on these proposed changes to their original proposal that they made in July, and the way they're rolling out the amendments to it. What's it doing to business in the region?

10:10 a.m.

President and Chief Executive Officer, Sarnia Lambton Chamber of Commerce

Shirley de Silva

The way they're communicating out to small businesses about the changes is very poor. We put out some information on our website, and then we had commentary come back from small businesses asking why this was important and saying that it was not going to change anything for them. We realized that small businesses just simply didn't have time to assimilate the information and become aware that this was really going to impact them. In order for them to be ready for upcoming changes, there needs to be both greater communication and a larger time frame so that they're able to assimilate the information, think about how it's going to impact them, and provide feedback.

10:10 a.m.

Conservative

Tom Kmiec Conservative Calgary Shepard, AB

On that, I found it interesting, considering your presentation talked about the $50,000 for passive investments. Talking about bad communication, to be clear, the implication is $50,000 of interest earned on the small business assets they have. I found it interesting that my colleagues on the other side didn't correct you on it. However, even in the media, both sides have been proposed as the correct answer, which is that you can have $50,000 of assets or $50,000 of interest, and then you have the new tax rates kick in.

On scaling up a business, Jack Mintz, Canada's leading tax expert, has already analyzed some of the implications of these tax changes. He said that new effective tax rates, the smaller small business rate, the higher taxes on dividends, and the new earnings stripping rules—which are still going ahead, as far as we know—would basically mean that businesses would now face a higher effective tax rate, going up an extra 3.5%.

When you talk about scaling up a business, once you get into the asset range where you have enough assets to generate income—for example, $10 million's worth of assets, buildings, a second business, and employees—at that range you are looking at the tax rate when determining whether you're going to make a merger and acquisition, hire new people, or expand and scale up your business to get into the medium and larger range.

What do you think your members will say when they see that effectively their tax rates are going up 3.5%?

10:15 a.m.

President and Chief Executive Officer, Sarnia Lambton Chamber of Commerce

Shirley de Silva

I think it will not be welcome news that it's going up by 3%. It will impact them negatively.

Did you want to add anything to that?

10:15 a.m.

Manager, Policy and Advocacy, Sarnia Lambton Chamber of Commerce

Monica Shepley

I think that if it discourages growth, it's not a good thing. We're trying to encourage our small businesses to grow and we're trying to encourage entrepreneurs.

It's also the uncertainty. There are a lot of these details that we don't know about to really comment on yet. That's what needs to be clarified so that businesses aren't afraid and we're not giving them misinformation.

I can't really comment on that, but it sounds like it's not great for business at all.

10:15 a.m.

President and Chief Executive Officer, Sarnia Lambton Chamber of Commerce

Shirley de Silva

I guess the devil is in the details, right? We need more information. We need to inform our members about what is taking place.

10:15 a.m.

Conservative

Tom Kmiec Conservative Calgary Shepard, AB

I'm going to switch over to Mr. Fisher with the Council of the Great Lakes Region.

At the very beginning, you talked about the modernization of NAFTA, and then you kind of left it. I want to let you finish your thoughts on the ongoing negotiations and especially on the impact on the region, if they're less than successful. We can compare it to Brexit, soft versus hard possibilities for NAFTA, a soft deal, a hard deal, a soft exit or a hard exit.

What do these ongoing negotiations mean for this region? Are businesses today making decisions during all the mounting uncertainty from the Trump administration's varying positions on trade?

10:15 a.m.

President and Chief Executive Officer, Council of the Great Lakes Region

Mark Fisher

I think it's fair to say that if you're in business in the Great Lakes region and you have operations on both sides of the border, you're thinking about plans B and C.

Three months ago I was probably more of an optimist about where we started, but I'm probably sitting at about 50/50 with respect to where we're going with the negotiations from a modernization standpoint.

The challenge is that there are issues from the last 25 years—real issues, technical issues—that we need to address, but we seem to be overloading the conversation with new issues and proposals, particularly from the U.S., that are unworkable. From my perspective, unless there is a major shift in that conversation, I'm not sure how we get to a successful outcome.

It's still early days, though. We just finished the fourth round, but each round seems to be getting a bit tougher. I'm hoping that cooler heads will prevail among the negotiating teams, and that businesses in the United States will start speaking up very loudly over the next couple of weeks about the importance of doing trade with Canada and Mexico. If we end up in a position where the talks break down and a decision to withdraw from NAFTA is ultimately made by the President, the default is going back to most favoured nation status, which would obviously create some new tariff structures.

From what I understand from business, as much as they don't want to go in that direction, they would probably live with it. It's certainly going to add costs to consumers. I was speaking to a company yesterday that makes appliances, and the tariff rate for them would likely go to 8%, which would probably add between $50 million to $60 million to their supply chain. That's going to be passed on to the consumer in additional costs. I think people are starting to figure out what that world looks like in new MFN tariff rates, but I hope we don't get there, to be honest.

The second point I would make as we're thinking about NAFTA is that there are new opportunities with Europe through CETA, and this region needs to start thinking really hard about how this region serves as a platform for serving Europe. We've been very focused on north-south engineering of our business and supply chains, and there are reasons we did that. However, with the opening of a 500-million-person marketplace in Europe, I think it's time for us to also start thinking about how this region can serve Europe.

10:20 a.m.

Liberal

The Chair Liberal Wayne Easter

We'll have to end it there. I don't want us as a committee to add to the confusion. There's no question that Jack Mintz does very good work in his analysis, but the truth of the matter is that not all the government's responses to the consultations have been tabled yet. There will be more tomorrow and more clarifications. I think it would be wrong to publicly and definitively say that, on balance, the lowering of the small business tax rate and the other changes that are coming on small business would mean a 3.5% increase in taxes. I don't think we know yet, and I would suggest waiting until all the proposal rolls out, and then we'll do that analysis.

Go ahead.

10:20 a.m.

Conservative

Tom Kmiec Conservative Calgary Shepard, AB

To be clear, Mr. Chair, I was referring to a Financial Post article written by Jack Mintz, in which he goes through today's proposals as far as we know them. I'm not making it up.

10:20 a.m.

Liberal

The Chair Liberal Wayne Easter

I know you're not making it up. I said that Jack Mintz's analysis is usually very good, but I don't think all the government's announcements have been rolled out. When tomorrow comes and the last announcement on—

10:20 a.m.

Conservative

Tom Kmiec Conservative Calgary Shepard, AB

And then tomorrow and the day after and the day after.

10:20 a.m.

Liberal

The Chair Liberal Wayne Easter

—the small business consultations are done, when the analysis is based on that, then we'll know where we stand.

Go ahead, Mr. Fergus.

10:20 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Thank you very much.

I would first like to expand on what the chair said. I think it is very important for our decisions to be based on facts and not on government proposals. The minister was very clear on that. Those were proposals. He wanted feedback from Canadians. We received feedback until October 2. This week, and even today, he made several announcements to address the gaps in his proposals. I think that enables us to make evidence-based decisions, and that is important for business people, especially small business owners, who want to have some sort of stability before they make decisions.

I would like to turn to you, Ms. Maheu. I want to thank you very much, as well as your colleague Ms. Rayner. As I have worked in the private sector, I know that 3M Company Canada is a business that does a lot of research and makes a great deal of investment in Canada. So thank you very much.

As for the patent box—and this may be an intellectual discussion—how does it work, especially with multinationals? Does it yield investment results in a target country like Canada? Does it work really well? Based on your experience in the United Kingdom, where there are patent boxes, can you talk to us about the way to ensure that investments will be made in the target country?

10:25 a.m.

Senior Manager, Taxation , 3M Company Canada

Nicole Rayner

The biggest challenge to investment in the manufacturing sector is return on investment, and part of the component that goes into that calculation would be the tax rate applied to the profit. 3M Company Canada competes globally with other 3M subsidiaries for our new investment. If you have a patent box in any particular country and if it results in a lower tax rate for that particular manufacturing line, it improves that return on investment calculation and puts you in the running to get that manufacturing mandate in your country. It does work, even in multinational situations.

10:25 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

If several countries adopt a patent box, does it mean that it's really a race to the bottom tax rate?

10:25 a.m.

Senior Manager, Taxation , 3M Company Canada

Nicole Rayner

We have heard that criticism. However, for every individual country, if otherwise you have no opportunity whatsoever to obtain that manufacturing mandate, any incremental tax that is collected because in this case a mandate comes to Canada is beneficial.

10:25 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Thank you.

Professor Baker, I'm very happy to have you with us because this is not the first time McMaster University has been mentioned before this committee. When we were in Saskatoon, Dr. Root, of the Canadian Centre for Nuclear Innovation Inc., praised you when he talked about the importance of investing in McMaster University's nuclear research centre.

He mentioned some figures, and I would like you to confirm something. He suggested an amount of $24 million over five years and $19 million per year thereafter to ensure the sustainability of McMaster University's nuclear research centre. Can you confirm those figures?

10:25 a.m.

Vice-President, Research, McMaster University

Dr. Robert Baker

In general, yes, I can. We have been working a lot with various universities across Canada. The $19 million on an ongoing basis represents a sum of about $7 million that would be needed at McMaster to increase the amount of time the reactor runs there. We run it a certain number of hours per day; if we had about $6 million to $7 million more, we could run it literally 24-7. Simply, the more you run the reactor, the more neutrons you get out of it. We could also upgrade the power; right now, we're running at a relatively low rate.

That would be a relatively easy fix for the problem of Chalk River shutting down in the spring. We can turn it on more, but we need more staff to run it, obviously.

For the other part of the funding—let's say we had $6 million or $7 million for McMaster directly for the extra running of the reactor—the other thing that has gone on is access to international neutron sources around the world, and again, this has been led by McMaster. A little while ago, the Canada Foundation for Innovation, the CFI, had international access to international infrastructure. We put forward a CFI grant that generated many millions of dollars and would allow Canadian researchers to visit nuclear sites around the world to do their experiments and use neutrons in specialized facilities around the world.

Unfortunately, that program has now come to an end, so we're talking about this perfect storm. With Chalk River shutting down, there are no neutrons there. We have the only active research reactor in the entire country, and, at the same time, we now have no funds to access neutron sources around the world.

We are very concerned about access to neutrons, particularly in advanced manufacturing materials. These sources are incredibly important in understanding the safety of materials, the development of new materials, and the creation of medical isotopes. They're incredibly important.

Of that $19 million on the ongoing thing, we'd probably need something like maybe $8 million or $9 million for access to international sources. There's also a small amount in the budget—and to be honest, I'm not so sure we need all of that—to organize the access to international sites. We obviously have to contribute to these international sites to get access, but to be honest, I think we may be overestimating the amount we need to organize and strategize that kind of discussion.

However, I would argue that, yes, on an ongoing basis, close to $19 million is probably what we need.